Raymond James Equity Research analyst Aaron Kessler maintains his Outperform rating for eBay Inc (NASDAQ:EBAY) as the company announces better than expected fourth quarter results.


eBay Inc (NASDAQ:EBAY) reported mixed 4Q numbers, though generally better than feared given recent data points. Likewise, while 2014 guidance was below consensus, this was largely expected by investors. We maintain our Outperform rating given: 1) eBay’s leadership position in Marketplaces and Payments; 2) our expectation for low-to-mid teens long-term EPS growth vs. 2015 P/E of ~16x. At the same time, we lower our price target from $64 to $62 given our lowered 2015 EPS estimates.

eBay’s fourth quarter earnings highlights

Total revenues of $4.53 billion increased 13.5% y/y (vs. +14.3% y/y in 3Q), was below our/consensus estimates of $4.57/$4.55 billion. Non-GAAP operating income of $1.32 billion was 2% above our estimate due largely to lower product development expenses. Non-GAAP EPS of $0.81 was slightly above our/consensus estimates of $0.80 and was at the high end of guidance of $0.79-0.81. Also, Carl Icahn proposed that eBay Inc (NASDAQ:EBAY) spin off PayPal in a letter to eBay, eBay believes it is in shareholders’ best interest to keep eBay and PayPal as one company given operating synergies.

Positives for eBay

1) U.S. Marketplace – GMV growth of 14% (vs. 15% in 3Q) was better than feared as recent data points suggested weaker growth; 2) PayPal – Merchants services payments growth remained strong at 31% y/y (vs. 30% in 3Q) while segment margins increased 270 bp y/y driven by operating expense leverage. 3) Mobile: Mobile commerce volume increased 88% y/y between eBay and PayPal.

Negatives for eBay

1) Guidance for both 1Q14 and FY2014 came in below our/consensus prior estimates, though we believe this was largely anticipated by investors. eBay Inc (NASDAQ:EBAY) also lowered its 2015 goals (now expects 10% plus EPS growth vs. mid-high teens previously). 2) International Marketplace – remains soft at 10% y/y GMV growth forex neutral. 3) eBay Enterprise – revenues declined 2% y/y due to client/channel mix, and lower take rate.


eBay Inc (NASDAQ:EBAY) guided 2014 net revenues to $18-18.5 billion, vs. our prior/consensus estimates of $18.38/$18.5 billion and non-GAAP EPS guidance of $2.95-3.00 (vs. our prior /consensus estimates of $3.12/$3.12).


For 2014/2015, we lower our revenues by 1%/2% while our 2014/2015 non-GAAP EPS move from $3.12/$3.57 to $2.97/$3.29.

eBay’s valuation

Our new $62 target price is based on our sum-of-the-parts analysis (see page four). On a combined basis, our analysis implies an 18.7x 2015 P/E multiple (vs. 10% estimated non-GAAP EPS CAGR from 2013-2015).